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ENTERPRISE: An organization that combines scarce resources for the production and supply of goods and services. The term enterprise is generally used synonymously with other terms such as business, firm, and company. If a distinction exists, enterprise can be profit oriented, nonprofit, privately owned, or government controlled. Alternatively, the term enterprise might also be used more in reference to the production activity itself rather than the organization.

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Lesson 10: Gross Domestic Product | Unit 3: Two Views of GDP Page: 14 of 25

Topic: Demand and Supply <=PAGE BACK | PAGE NEXT=>

GDP can be measured in two different ways.
  • Demand-side: In a market transaction, the buyer pays a price for a good or a service based on the value of the good. This indicates that the value of GDP can be measured from expenditures.
  • Supply-side: For seller's, the revenue received from selling a good is used to pay resources--the cost of production. This indicates that the value of GDP can be measured by the resource cost of production.
  • These two sides--expenditures and resources--give us two ways of measuring GDP.
  • Each can be used to check the other.

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GOVERNMENT CONSUMPTION EXPENDITURES AND GROSS INVESTMENT

The official item in the National Income and Product Accounts maintained by the Bureau of Economics Analysis measuring government purchases undertaken by the government sector. Government consumption expenditures and gross investment averages between 15-20 percent of gross domestic product. As might be expected, this percentage tends to be ebb and flow with the political winds. Some political leaders prefer more government activity, others less. However, this percentage is even more dependent on military conflicts and wars that require massive government activity. The other official expenditures included in the National Income and Product Accounts are personal consumption expenditures, gross private domestic investment, and net exports of goods and services.

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